Herley Reports Earnings for Third Quarter FY 2010

Conference Call Scheduled for Friday, June 11, 2010

Jun 10, 2010, 16:37 ET from Herley Industries, Inc.

LANCASTER, Pa., June 10 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY) today reported financial results for the Third Quarter of Fiscal Year 2010.

Net sales for the third quarter of fiscal 2010 were $45.4 million as compared to $41.8 million for the third quarter of fiscal 2009. Net income for the third quarter was $2.6 million, or $.19 per diluted share, compared to $2.4 million or $.18 per diluted share, last year.

The Company's EBITDA for the third quarter of 2010 was $5.5 million compared to $5.4 million last year. Adjusted for the impact of litigation costs and net settlements in the respective quarters, adjusted EBITDA for the third quarter of 2010 was $7.1 million compared to $6.1 million last year. EBITDA is defined as net income plus net interest, taxes, depreciation and amortization.

The Company reported a revenue increase of $3.6 million in the third quarter of fiscal 2010 compared to the same period in the prior fiscal year. The 8.7% increase was primarily related to increased deliveries under major production programs, including increases attributable to manufacturing process improvements as well as revenue recognized under certain percentage-of-completion contracts.

Gross profit in the quarter was $13.7 million (30.0% gross profit margin) compared to $11.2 million (26.8% gross profit margin) last year, an increase of $2.5 million. The increase in gross profit and gross profit margin during the quarter was principally a result of the sales volume increase and improvements in margins related to manufacturing efficiencies as well as a reduction in the estimated costs to complete a contract nearing completion.  On a comparative basis, the third quarter of fiscal 2009 included a provision of $2.0 million for estimated losses on various contracts due to changes in estimated costs required to complete the contracts.

Selling and administrative ("S&A") expenses for the third quarter were $8.0 million, or 17.6% of net sales, compared to $7.5 million, or 18.0% of net sales, in the prior-year third quarter. The $.5 million increase in S&A expenses is primarily attributable to increased bid and proposal costs of $.3 million essential to future bookings and increased audit fees of $.2 million.

The Company reported operating income during the third quarter of fiscal 2010 of $4.1 million compared to $3.0 million last year.

At May 2, 2010, the Company's balance sheet was strong, with total cash and cash equivalents of $19.4 million, working capital of $92.8 million and long-term debt of $12.5 million. Capital expenditures were $.7 million for the third quarter of fiscal 2010 compared to $1.9 million last year.

John Thonet, Chairman of Herley's Board of Directors, commented, "The Board of Directors is pleased with the third quarter performance and commends CEO Richard Poirier and his division managers for a job well done."

Richard F. Poirier, Chief Executive Officer and President, commented, "In our third quarter, we experienced year-over-year improvement in net sales, net income and gross profit margins.   Strong bookings during the quarter brought us to a backlog of $184.1 million as we entered the fourth quarter of the fiscal year."

We present the non-GAAP (generally accepted accounting principles) measure EBITDA (as defined herein) in this report and anticipate referring to this measure in the conference call referenced below. Presentation of EBITDA is consistent with how we evaluate our performance internally and EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is a non-GAAP operating measure under Regulation G of the Securities and Exchange Commission. We compute EBITDA by adding back net interest, taxes, depreciation and amortization to net income. Each of these GAAP financial measures is included in our financial statements and thus EBITDA can be reconciled to net income attributable to common shareholders, the most comparable GAAP financial measure to it. However, other companies in our industry may calculate EBITDA differently than we do. EBITDA is not a measurement of financial performance under GAAP and should not be considered as a substitute for cash flow from operating activities as a measure of liquidity or a substitute for net income as an indicator of operating performance or any other measure of performance derived in accordance with GAAP. Net income attributable to common shareholders is reconciled to EBITDA for the third fiscal quarter of 2010 and 2009, respectively, in the following table (in thousands):

Thirteen Weeks Ended

May 2,

May 3,

2010

2009

Net Income

$2,637

$2,423

Add:

Interest, net

97

188

Taxes

1,191

567

Depreciation

1,341

1,585

Amortization

262

628

EBITDA

$5,528

$5,391

Adjust for net Litigation Costs

1,548

664

Adjusted EBITDA

$7,076

$6,055

Mr. Thonet will host a conference call on June 11, 2010 at 10:00 a.m. Eastern time to discuss financial results for the Third Quarter of Fiscal 2010 ended May 2, 2010.   He will be joined on the call by Mr. Richard H. Poirier, Chief Executive Officer and President, and Mr. Anello C. Garefino, Chief Financial Officer.  To join the conference call dial 1 (888) 425-4188, referencing Conference ID #79502871.  

A taped replay of the call will be available one hour after completion of the call through June 18 at 11:59 p.m. Eastern time.  To listen to the replay dial: 1 (800) 642-1687 (U.S.) or 1 (706) 645-9291 (International), and Conference ID #79502871.

In addition, the conference call will be broadcast live over the Internet and can be accessed through the following URL: http://www.videonewswire.com/event.asp?id=69742.  To listen to the live call on the Internet, go to the website at least 15 minutes early to register, download and install any necessary audio software.

Herley Industries, Inc. is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide.  Based in Lancaster, PA, Herley has seven manufacturing locations worldwide and approximately 1000 employees.  Additional information about the company can be found on the Internet at www.herley.com

Safe Harbor Statement - Except for the historical information contained herein, this release may contain forward-looking statements. Such statements are inherently subject to risks and uncertainties. Forward-looking statements involve various important assumptions, risks, uncertainties and other factors which could cause our actual results to differ materially from those expressed in such forward-looking statements. Forward-looking statements in this discussion can be identified by words such as "anticipate," "believe," "could," "estimate," "expect," "plan," "intend," "may," "should" or the negative of these terms or similar expressions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievement. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including but not limited to, competitive factors and pricing pressures, changes in legal and regulatory requirements, cancellation or deferral of customer orders, technological change or difficulties, difficulties in the timely development of new products, difficulties in manufacturing, the outcome of pending litigation, commercialization and trade difficulties and current economic conditions, including the potential for significant changes in US defense spending under the current Administration which could affect future funding of programs and allocations within the budget to various programs as well as the factors set forth in our public filings with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

May 2,

2010

August 2,

(Unaudited)

2009

ASSETS

Current Assets:

Cash and cash equivalents

$    19,439

$

14,820

Trade accounts receivable, net

25,405

28,687

Income taxes receivable

3,614

36

Costs incurred and income recognized in excess

  of billings on uncompleted contracts and claims

5,386

10,396

Inventories, net

55,822

57,804

Deferred income taxes

15,221

19,380

Other current assets

3,667

2,780

Total Current Assets

128,554

133,903

Property, plant and equipment, net

32,051

32,872

Goodwill

43,722

43,722

Intangibles, net

8,455

9,619

Deferred income taxes

5,564

7,571

Other assets

467

598

Total Assets

$  218,813

$

228,285

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Current portion of long-term debt

$        ,322

$

1,595

Current portion of employment settlement agreements

1,304

7,400

Current portion of litigation settlements

975

954

Accounts payable and accrued expenses

20,875

26,447

Billings in excess of costs incurred and

   income recognized on uncompleted contracts

868

261

Accrual for contract losses

2,097

3,440

Advance payments on contracts

8,323

12,698

Total Current Liabilities

35,764

52,795

Long-term debt, net of current portion

11,187

12,246

Long-term portion of employment settlement agreements

1,786

2,827

Other long-term liabilities

8,097

8,361

Total Liabilities

56,834

76,229

Commitments and Contingencies

Shareholders' Equity:

Common stock, $.10 par value; authorized 20,000,000 shares;

 issued and outstanding 13,682,402 at May 2, 2010

 and 13,719,926 at August 2, 2009

1,368

1,372

Additional paid-in capital

103,094

103,113

Retained earnings

57,859

47,882

Accumulated other comprehensive loss

(342)

(311)

Total Shareholders' Equity

161,979

152,056

Total Liabilities and Shareholders' Equity

$  218,813

$

228,285

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)

Thirteen weeks ended

Thirty-nine weeks ended

May 2,

May 3,

May 2,

May 3,

2010

2009

2010

2009

Net sales

$

45,438

$

41,811

$

139,726

$

117,129

Cost and expenses:

Cost of products sold

31,786

30,613

99,930

89,658

Selling and administrative expenses

7,989

7,513

23,416

22,049

Net gain on sale of assets

-

-

-

(573)

Litigation costs, net of recovery settlement

1,548

664

864

1,055

Employment settlement costs

-

-

900

-

41,323

38,790

125,110

112,189

Operating income

4,115

3,021

14,616

4,940

Other (expense) income:

Interest income

9

58

29

94

Interest expense

(106)

(246)

(436)

(945)

Foreign exchange transaction (losses) gains

(190)

157

(355)

(233)

(287)

(31)

(762)

(1,084)

Income from continuing operations

   before income taxes

3,828

2,990

13,854

3,856

Provision (benefit) for income taxes

1,191

567

3,877

163

Income from continuing operations

2,637

2,423

9,977

3,693

Discontinued operations:

Loss from operations of discontinued subsidiary

-

-

-

(734)

Benefit for income taxes

-

-

-

(278)

Loss from discontinued operations

-

-

-

(456)

Net income

$

2,637

$

2,423

$

9,977

$

3,237

Earnings (loss) per common share - Basic

Income from continuing operations

$

.19

$

.18

$

.73

$

.27

Loss from discontinued operations

-

-

-

(.03)

Net income - basic

$

.19

$

.18

$

.73

$

.24

Basic weighted average shares

13,580

13,559

13,691

13,545

Earnings (loss) per common share - Diluted

Income from continuing operations

$

.19

$

.18

$

.72

$

.27

Loss from discontinued operations

-

-

-

(.03)

Net income - diluted

$

.19

$

.18

$

.72

$

.24

Diluted weighted average shares

13,885

13,721

13,873

13,774

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)

(In thousands)

Thirty-nine weeks ended

May 2,

May 3,

2010

2009

Cash flows from operating activities:

Net income

$

9,977

$

3,237

Adjustments to reconcile net income to

  net cash provided by operating activities:

Depreciation and amortization

5,236

6,374

Loss (gain) on sale of fixed assets

28

(573)

Impairment of goodwill of discontinued subsidiary

-

1,000

Stock-based compensation costs

291

458

Excess tax benefit from exercises of stock options

(893)

(61)

Litigation settlement costs

975

-

Imputed interest on employment and litigation settlement liabilities

124

275

Inventory valuation reserve charges

1,102

1,164

Warranty reserve charges

1,324

1,130

Deferred tax provision (benefit)

7,049

16

Changes in operating assets and liabilities:

Cash of discontinued subsidiary

-

(712)

Trade accounts receivable

3,203

(2,285)

Income taxes receivable

(3,578)

2,056

Costs incurred and income recognized in excess of billings on uncompleted contracts and claims

4,878

3,477

Other receivables

192

1,020

Inventories, net

799

(6,167)

Other current assets

(1,096)

(965)

Accounts payable and accrued expenses

(6,171)

(6,094)

Billings in excess of costs incurred and

 income recognized on uncompleted contracts

649

175

Income taxes payable

428

18

Accrual for contract losses

(1,329)

1,420

Employment settlement payments

(8,115)

(964)

Litigation settlement payments

(3,000)

(1,000)

Advance payments on contracts

(2,372)

9,361

Other, net

(108)

(224)

Total adjustments

(384)

8,899

Net cash provided by operating activities

9,593

12,136

Cash flows from investing activities:

Acquisition of business, net of cash acquired

-

(30,010)

Proceeds from sale of discontinued business

-

15,000

Proceeds from sale of fixed assets

152

-

Capital expenditures

(3,484)

(4,524)

Net cash used in investing activities

(3,332)

(19,534)

Cash flows from financing activities:

Borrowings under bank line of credit

7,000

31,000

Borrowings - term loan

-

10,000

Proceeds from exercise of stock options

-

313

Excess tax benefit from exercises of stock options

893

61

Payments of long-term debt

(1,302)

(1,595)

Payments under bank line of credit

(7,000)

(32,500)

Purchase of treasury stock

(1,207)

-

Net cash (used in) provided by financing activities

(1,616)

7,279

Effect of exchange rate changes on cash

(26)

(89)

Net increase (decrease) in cash and cash equivalents

4,619

(208)

Cash and cash equivalents at beginning of period

14,820

14,347

Cash and cash equivalents at end of period

$

19,439

$

14,139

For information at Herley contact:

Peg Guzzetti

Tel:  (717) 397-2777

Investor Relations

www.herley.com

SOURCE Herley Industries, Inc.



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